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Income Tax Appellate Tribunal, KOLKATA BENCH (D
Before: Shri P.M. Jagtap, AM & Shri S.S. Godara, JM]
order
: September 26, 2018 ORDER
Per P.M. Jagtap, AM
This appeal is preferred by the revenue against the order of Ld. CIT(A) – 18, Kolkata dated 31.01.2017 and the solitary ground raised therein reads as under: “That on the facts and in the circumstances of the case, the Ld. CIT(A) – 18, Kolkata has erred in deleting the disallowance made by the AO u/s 37(1) of Rs. 70,61,774/- regarding printing expenses claimed by the assessee company in which the gift of writing pads given to the medical practitioners was treated by the AO as ‘freebies’ and without properly considering the fact that Circular No. 5 of 2012 is of clarificatory nature and disallowance of gift (freebies) u/s 37(1) should be treated to be applicable w.e.f. 10.12.2009 i.e. from the date of prohibition of imposition by the Indian Medical Council to the medical practitioners.”
The assessee in the present case is a company which filed its return of income for the year under consideration on 16.09.2011 declaring a loss of Rs. 1,68,08,926/-. During the course of assessment proceedings, it was noticed by the AO that the assessee has claimed
Assessment Year: 2011-12 M/s. Strategic Marketing Solution & Research Centre Pvt. Ltd. printing expenses of Rs. 70,61,774/-. The assessee company was called upon by the AO to explain the compliance of TDS in respect of the said printing expenses. In reply, it was submitted by the assessee company that it is in the business of offering strategic marketing solutions through its consultancy services to a number of pharmaceutical organisations in India and Bangladesh and during the course of the said business, it was required to distribute writing pads to the doctors for writing prescriptions. It was explained that the said writing pads were initially purchased from the various vendors and the expenses incurred on such purchases were not in the nature of any contractual expenses to attract TDS obligation u/s 194C of the Act. It was explained that the assessee company however changed this pattern and provided the writing pads with the names of doctors printed therein. For this purpose, it entered into contracts with the printers and accordingly tax u/s 194C was deducted from the payment of printing charges amounting to Rs. 34,00,415/-. The AO did not accept this explanation of the assessee. According to him, the assessee company was liable to deduct tax at source from the entire payments of printing charges amounting to Rs. 70,61,774/- and accordingly the disallowance of Rs. 36,61,359/- (Rs. 70,61,774/- - Rs. 34,00,415/-) was made by him u/s 40(a)(ia).
Without prejudice to the disallowance made u/s 40(a)(ia), the AO also treated the entire printing expenditure of Rs. 70,61,774/- incurred by the assessee for distributing writing pads amongst the doctors as ‘freebies’ given to the medical practitioner which was in violation of the regulations issued by the Medical Council of India. In Assessment Year: 2011-12 M/s. Strategic Marketing Solution & Research Centre Pvt. Ltd.
this regard, he relied on the CBDT Circular No. 5/2012 dated 01.08.2012 and held that the entire printing expenses of Rs. 70,61,774/- could not be allowed u/s 37 of the Act.
The disallowance made by the AO on account of printing expenses was challenged by the assessee in the appeal filed before the Ld. CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT(A) held that the expenses incurred by the assessee on distribution of writing pads to the doctors was allowable as deduction u/s 37 and deleted the disallowance made by the AO for the following reasons given in his impugned order: “I have carefully considered the facts of the case and the submissions of the assessee. Assessee has claimed that the writing pads do not give any benefit to the doctors. Giving them to doctors do not confer any benefits to doctors in the nature of freebies. I agree with the view of assessee. These writing pads are not in the nature of any valuable goods or benefits which by itself many induce a doctor in showering undue favours to any particular person. Hence, these would not be covered by Circular No. 5 of 2012. Besides, Mumbai Tribunal has already held that Circular No. 5 of 2012 would be applicable from AY 2013-14. Hence, disallowance of Rs. 70,61,774/- on account of these being ‘freebies’ to doctors, is not sustainable.”
As regards the disallowance on account of printing charges made by the AO alternatively u/s 40(a)(ia) to the extent of Rs. 36,61,359/-, the Ld. CIT(A) restricted the same to Rs. 16,93,469/- for the following reasons given in his impugned order: “Now coming to TDS aspect, assessee's contention that TDS provisions were applicable only on part expenses under this head and it has complied with the same, is not acceptable. Assessee has claimed that TDS provisions u/s 194C were applicable only on customized prescription pads
Assessment Year: 2011-12 M/s. Strategic Marketing Solution & Research Centre Pvt. Ltd. which were procured in the later part of the year. However, this is not acceptable. Right from the beginning of the year, assessee was procuring customised prescription pads, which would help in easily compiling the details about patients, their place of residence, diseases diagnosed and medicines prescribed. Hence, TDS provisions were attracted on the entire expenses under this head. As per assessee's claim, doctors' names were printed on prescriptions in the latter part of the year. Assessee considers only these writing pads to be customised pads, attracting provisions of section 194C. However, this is not correct. Apart from names on writing pads, everything else was custom made right from the beginning. Merely putting doctor's name would not change its nature. Even claim of assessee that initially doctor's names were not printed on writing pads, is not verifiable. Neither has the assessee submitted any documentary evidences. Under the circumstances, it is held that TDS provisions were attracted on the entire payments and disallowance u/s 40(a)(ia) are sustained, in principle. However, during appeal proceedings, assessee has submitted documentary proof that deducted tax on payments of Rs. 19,67,860/- were also deposited in government amount in the next financial year, before the due date of filing return. Hence, disallowance of this amount u/s 40(a)(ia) is not justified. In view of the above, disallowance u/s 40(a)(ia) is restricted to Rs. 16,93,469/- and addition to this extent is confirmed.”
Aggrieved by the order of the Ld. CIT(A), the revenue has preferred this appeal before the Tribunal.
At the time of hearing, the authorised representative of the assessee has made an application seeking adjournment. However, keeping in view that the solitary issue involved in this appeal of the revenue is squarely covered in favour of the assessee, the request made on behalf of the assessee for adjournment is not acceded to and this appeal of the revenue is being disposed of after considering the arguments of the learned DR and perusing the relevant material available on record. It is observed that the Assessment Year: 2011-12 M/s. Strategic Marketing Solution & Research Centre Pvt. Ltd.
relief allowed by the Ld. CIT(A) on account of printing charges to the assessee is challenged by the revenue on the ground that the CBDT Circular No. 5/2012 stipulating for the disallowance on account of ‘freebies’ is applicable with retrospective effect from 10.12.2009 being clarificatory in nature. However, as rightly observed by the Ld. CIT(A) in his impugned order, this aspect has already been considered and decided by the Mumbai Bench of this Tribunal in the case of Macleods Pharmaceuticals Ltd. vs ACIT 74 Taxmann.Com 250 wherein it was held that the CBDT Circular No. 5/2012 is applicable only from A.Y. 2013-14. The issue involved in this appeal of the revenue thus is squarely covered in favour of the assessee by the said decision of the Co-ordinate Bench of this Tribunal and respectfully following the same, we uphold the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue.
It is also observed that the disallowance of Rs. 70,61,774/- made by the AO on account of printing charges was sustained by the Ld. CIT(a) vide his impugned order alternatively u/s 40(a)(ia) to the extent of Rs. 16,93,469/-. The Ld. CIT(a) thus has effectively allowed a relief of Rs. 53,68,275/- only to the assessee which is challenged by the revenue in the present appeal. The tax effect involved in the appeal of the revenue thus is less than the revised monetary limit of Rs. 20 lacs fixed by the CBDT for filing the appeal of the revenue before the Tribunal and the same is liable to be dismissed at the threshold on account of low tax effect.
Assessment Year: 2011-12 M/s. Strategic Marketing Solution & Research Centre Pvt. Ltd.
In the result, the appeal of the revenue is dismissed. Order Pronounced in the Open Court on 26th September, 2018.